The Committee for Promoting Investment in Public Companies Engaged in Research and Development submitted its interim report today to ISA Chairman, Prof. Shmuel Hauser. The Committee’s findings include a series of recommendations designed to promote possible solutions for high-tech companies raising capital through the Tel Aviv Stock Exchange (TASE), through the encouragement of IPOs of relatively large high-tech companies, the encouragement of TASE-traded venture capital funds and R&D partnerships, that will invest in and support a number of early stage high-tech companies and ventures. In addition, the Committee recommends adopting off-exchange solutions for startups seeking to raise capital, such as crowd funding.
Prof. Shmuel Hauser, set up the Committee last September and appointed Att. Sraya Orgad, the Legal Counsel of the ISA Corporate Finance Department and Ms. Hani Shitrit Bach, TASE Senior Vice President and Head of the Economic Department to co-chair the Committee. The committee includes senior staff from the ISA, TASE, the Budgets Department and Capital Market, Insurance and Savings Division of the Ministry of Finance, the Ministry of Justice, the National Economic Council and the Tax Authority. The Committee’s recommendations include dispensations pertinent to all these offices and their respective areas of responsibility.
Within the framework of its recommendations, which were formulated after numerous discussion and meetings with various parties active in the high-tech and biotech and biomed industries, the Committee recommends a number of measures, which aims at companies with market caps exceeding NIS 250 million or whose annual sales turnover comes to NIS 80 million or more and seeks to raise significant amounts of capital, to be listed on TASE.
To encourage Israeli offerings for these companies, the Committee recommends, inter alia, that TASE set up a new “Elite Tech” list, which will include shares of new high-tech concerns alongside already-traded high-tech companies bearing a market cap of at least NIS 400 million. TASE will create an index on this list. Within the framework of dispensations and benefits given to the new target companies, ongoing disclosure requirements will be adjusted, including a full exemption from ISOX requirements, the option to file financial statements according to US GAAP and the option to file all disclosures in English. Corporate governance requirements will be eased for a limited time following the target companies going public and tax benefits will be given to investors purchasing the securities in these companies in an IPO or secondary offering which will entitle investors to deduct their investment from future capital gains.
To ensure international exposure, TASE will implement a program for independent research providing market analysis for companies active in the “biomed” industries.
In addition, the Committee recommends enabling venture capital funds to trade under the model of closed-end mutual funds. Such funds will be entitled to invest up to 30% of the capital raised from the public in the securities of privately-held Israeli high-tech companies and the remaining 70% in high-tech companies traded in Israel. The funds’ income will be tax-exempt, while investors in the fund will be taxed only upon liquidation of fund unitsandupon earnings distributions. To enable the implementation of this model, the Committee recommends that institutional investors be allowed to hold up to 75% control of the funds (as defined in Section 9(2) of the Tax Ordinance), a departure from the 50% ceiling placed today on institutional ownership.
The Committee also recommends two solutions for off-exchange capital raising, well suited to young high-tech entrepreneurs not ready for a TASE listing. The Committee recommends enabling “crowd funding” (i.e. raising small amounts of capital from a large number of non-accredited investors through the Internet) and the establishment of sophisticated investor clubs.
The Interim Report entreats the public at large to submit their comments and suggestions prior to publication of the final report.
Upon receiving the Committee’s Interim Report, ISA Chairman, Prof. Shmuel Hauser thanked the committee members for their conscientious work stating: “It is of paramount importance to keep the center of activity for Israeli technology companies in Israel, given their substantial contribution to economic growth and job creation. Implementation of these recommendations constitutes an important facet of the ISA
Roadmap for developing the capital market and the Tel Aviv Stock Exchange. They can potentially tear down barriers and create incentives that could generate a significant change towards turning TASE into a financial hub that attracts R&D companies.”
Hauser added: “The need to undertake measures to help Israeli R&D companies raise capital is unquestionable, whether this be through public offerings on TASE, through TASE-traded venture capital funds and R&D partnerships that invest in high-tech companies, or through off-exchange financial mechanisms. The Committee’s recommendations will contribute to the accessibility of capital rising on TASE and will entail completion of a comprehensive package of legislative amendments in various areas, including the creation of tax incentives, government guarantees.
Ester Levanon, TASE CEO, remarked that TASE has been working for several years to develop into a hub for both local and foreign high tech companies. "I thank the ISA and all the parties which have taken part in the Committee, for their dedication to task of turning TASE into an attractive alternative for high tech companies seeking to raise capital. The Committee plays an important role and we intend to do whatever it takes to bring its recommendations to fruition".